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MUMBAI: Call it the Murthy effect. The valuation gap between Tata Consultancy Services and Infosys, which was a yawning 35 per cent six months ago, has narrowed to 12.5 per cent since NR Narayana Murthy returned to run the Bangalore-based company in June last year after having given up all executive roles about seven years before.

Infosys is currently trading at a price-earnings ratio of 17 times compared with 19.50 times for TCS for FY2015. At the time Murthy came back on board, Infosys was at 14 times compared with TCS's 21 times.

Since June, the Infosys stock has gained more than 55 per cent, adding nearly Rs 77,000 crore to its market capitalisation, which now stands at Rs 2.15 lakh crore. Once regarded as the bellwether of the IT industry, the company fell from grace as it missed forecasts amid a slump in the US and other economies. Since Murthy's return, the company has tweaked its strategy by, among other things, renewing its focus on large deals besides conducting a management shakeup. Meanwhile, overseas economies have also picked up in the last few months. Analysts expect further consensus upgrades going forward.

"Our 'buy' rating on Infosys reflects increasing confidence on the potential turnaround post the return of founder NR Narayana Murthy," said Mitali Ghosh, research analyst at Bank of America Merrill Lynch. "We believe revenue growth should accelerate as the company has sharpened its focus on large deals."

Leading brokerages have raised the Infosys price target to approximately Rs 4,500, about 20 per cent more than what it is now. The stock rose 0.6 per cent to Rs 3,749.90 on Monday.

The number of 'buy' ratings on the stock is the highest in two years. About 70 per cent of analysts have 'buy' recommendations on the stock compared with 9 per cent sell calls, while the rest advise 'hold'. Investment experts expect a strong demand environment for software services in 2014 due to the pickup in US discretionary spending. Data from Europe also suggest a recovery, they said. "Infosys' focus on growth is encouraging," said Viju K George, analyst at JP Morgan. Infosys "is prepared to be more realistic in the current environment as the company is prepared to temper the margin profile for increasing market share. Deal win rates in the bread-and-butter segments, including large deals, seem to be improving."

Infosys has revised its dollar revenue guidance upwards to 11.5-12 per cent for FY2014. The company reported December quarter earnings in line with market expectations, while exceeding them on the operating margin front.

"Narayana Murthy has provided more clarity on the recent management changes," said Yogesh Aggarwal, analyst at HSBC.